Who Is Buying All the Gun Company Stock?

Investors abandoned shares of Smith & Wesson Holding Corp. (NASDAQ: SWHC) and Sturm, Ruger & Co. (NYSE: RGR) after the Newtown shootings. Private equity firm Cerberus Capital Management plans to sell its Remington Outdoor Company operation, which is a holding company for its gun firm ownership. For every sale of shares of a corporation, there is a buyer on the other side. Someone, or some entity, believes that profit is more important than the chance of gun control, as well as the likely effects that control may have on massacres like the one in Newtown.

Smith & Wesson’s shares have dropped nearly 15% since the shooting, perhaps on the belief that gun control will undermine its earnings. The volume of shares traded was well above its 90-day average. But the shares at $44 apparently were irresistible, for a stock that traded at nearly $60 less than a month ago. Remington Outdoor Company likely will be sold at a discount to what Cerberus believed it was worth just a day before the shooting. But the PE firm clearly thinks that holding the company would be either bad PR or an ethical problem.

Capitalism and the free markets will always operate largely on buyers who believe that stocks being sold cheaply enough to earnings represent profits based on future prospects. The buyers of gun company stocks may believe that the effects of Newtown will blow over. Or perhaps efforts by national politicians to set new rules for ownership will fail because of aggressive lobbying by the NRA or the provisions in the Constitution that allow people to own and carry arms and use those arms to defend themselves. Of course, many of these guns are used to kill, but “people kill people, guns don’t,” according to ownership advocates. It is better to set stricter rules for the mentally unstable to have access to weapons.

No matter what the reason, the gun trade on Wall St. has attracted many buyers. Sales of guns, these investors believe, will continue to be a booming business, no matter what happened in Newtown.